Property Finance

Chapter 9China¹

1. What are the principal securities lenders will require borrowers to provide?

In China, the bank loan has long been the major – if not unique – property finance resource. Since 2011, real estate loans have been tightened up following the central government's policy attempting to control soaring property prices in major cities. Real estate trust and property funds are increasingly important in the property financing sector in China.

Under Chinese law, there are preconditions before banks or trust companies may grant loans. Such preconditions require that the project company should have obtained the land use right and planning related licences and that the project owner has injected at least 30% of the total project investment. In the meantime the borrowing of money from private funds does not need to fulfil such statutory preconditions. In addition China puts more restrictions over financing by foreign invested real estate companies.

To mitigate the risks, Chinese lenders usually ask for one or more of the following securities:

• mortgage over the land use right, buildings, and/or building under construction;
• pledge of the project owner's equity in the project company (share pledge);
• assignment or pledge of the anticipated income or premium from the project;
• suretyship.

2. What statutory provisions apply to such securities?

The key statutory law stipulating securities is the PRC Security Law. As the law only provides rather general provisions, the judicial ...